These ratings have a direct impact on borrowing, working capital, trade terms and tendering – all important factors for any new business. If your rating is low, it can restrict your access to supplies and prevent you from obtaining trade credit or funding of any kind, hampering your growth.

There are six main credit rating agencies in the UK and all LLP’s and Limited companies are rated using their respective algorithms. The scoring methodology for each agency is different, but all utilise data from Companies House, alongside payment data collected to evaluate how suppliers are paid against agreed credit terms. This data is then used to determine a company score and generate a recommended credit limit.

Why are ratings so important for startups?

When you start a new company there is limited data on you, mainly because you can trade for 12 months and then have another 9 months before you need to file your first accounts with Companies House. Combine that with the fact you may not have recorded many invoices or purchases in your first year and it all leaves a very large hole in the data that’s needed to generate your score.

Put very simply, your new business may have thrived during its first 18 months, but without enough financial data on record, your credit ratings may not reflect your initial success, which can restrict your future growth potential.

The COVID-19 pandemic has also escalated this situation, with tighter criteria being applied to lending and more credit checks being done than ever before, making it challenging for even an established business to get financial support to grow.

How can you improve your ratings?

Knowledge is key when it comes to business credit ratings, the more you know, the more action you can take to influence them in a positive way. Business credit repair is a new concept in the UK and as a result many business owners don’t realise that they can challenge a poor rating, or that it’s possible to get scores re-evaluated and improved quickly using real time data.

Maintaining an awareness of your ratings across all the different agencies is also important, as some are more active in specific industries, while others are used to run searches for specific financial situations (like lending or trade credit). Having a strong rating with one agency doesn’t always guarantee the same with the others, so monitoring all your ratings can help you identify and take action on potential issues in specific areas before they cause a problem.

Good financial habits, like paying your suppliers on time (where possible) can make a real difference. Filing accounting data correctly and on time is also a basic but fundamental step in adhering to the ratings process. Not only do these habits help to create a positive credit profile for your business over time, but they can also generate short term improvements such as better terms with suppliers and improving your chances of getting finance or funding.

Improving your ratings and being aware of them as you start up and grow is vital. It can be the key to unlocking opportunities, access to funding and new work. With an improved credit rating businesses can explore their full potential, maximise their financial capabilities and get on the road to business growth, something that in the current economic climate is more important than ever.